&EPA
~dstates DRINKING WATER STATE REVOLVING FUND
Environmental Protection
Agency
Investing in a
Sustainable
Future
2007 ANNUAL REPORT
-------
100%
90%
70% -
60% —
50% -
40% -
30%
20%
10%
Exhibit 1: Cumulative Growth
from 2003 to 2007
2007 Highlight:
For the Drinking Water State Revolving Fund
(DWSRF) program, 2007 was yet another
year of strong growth. The DWSRF program
continued its trend of acceleration and financial
performance in several key areas indicates
that the DWSRF is growing at an even faster
pace than contributions from federal and
state governments. Exhibit 1 summarizes the
cumulative result of these successes over the past
5 years (2003-2007).
Baseline for growth, based on
increase in cumulative net
investments into the DWSRF
from 2003 to 2007
Net
Investments
in the DWSRF
Funds
Available for
Assistance
Drinking Water
System
Repayments
Assistance
Provided
Disbursements
Set-A side
Spending
> Net Investments in the DWSRF: Annual federal allocations of about $850 million and state matches from 2003 to
2007 have increased cumulative investments by 60%. This increase forms the baseline for comparison.
> Funds Available for Assistance: This 78% increase was fueled by state leveraging and principal and interest
payments, which show the power of the program to greatly multiply federal investments.
> Drinking Water System Repayments:The recycled revenue stream increased by an astounding 304%.
> Assistance Provided: Assistance to drinking water systems more than doubled.
> Disbursements: Draws on loan agreements by drinking water systems increased by 127%, due to the increasing
pace of construction activity, delivering increased public health protection.
> Set-Aside Spending: States nearly doubled their set-aside spending, providing critical support to programs
ensuring sustainable public health protection and further expanding the impact of the DWSRF beyond those
drinking water systems receiving loans.
Office of Water (4606M)
EPA816-R-08-002
March 2008
www.e pa .g ov/saf e wa te r
-------
America's Public Water Systems:
At-a-Glance
Every day, hundreds of millions of Americans consume
drinking water supplied by more than 155,000 public
drinking water systems (PWSs). PWS operators and
managers work tirelessly to ensure the safety of their product
and the reliability of their service. The DWSRF program,
a 10-year old partnership between the U.S. Environmental
Protection Agency (EPA) and each state, has become the
primary public financing source for these utilities, enabling
them to invest in infrastructure improvements that are
critical to public health protection. The result is sustained
public health protection for millions of Americans today and
for generations to come.
Table of Contents
Introduction
1. Public Health Success
2. Financial Success
4. Future of the DWSRF
5. Financial Details
12
3. Achieving Sustainable Infrastructure 20
26
28
PWS Size
Number of PWSs People Served*
Small (< 10,000 served)
Medium (10,000-50,000)
Large (50,001-100,000)
Very Large (> 100,000)
146,508
155,693
39,574,939
29,128,528
106,154,234
131,679,655
306, 537,356
"Some individuals are served by multiple PWSs.
-------
From the
Assistant
Administrator
Benjamin H. Grumbles
Office of Water
I am pleased to present the Drinking Water State Revolving Fund's (DWSRFs) 2007
Annual Report. The DWSRF is now a $14.4 billion federal/state partnership focused on
protecting human health by helping utilities finance infrastructure to sustainably provide
safe drinking water to Americans. This report highlights the 10* anniversary of the
DWSRF, demonstrating accomplishments for not only 2007 but also for the past decade
that this exceptional program has been in existence.
Over the past 10 years, the DWSRF program has provided $12.6 billion in assistance to
5,555 projects that have improved public health protection for millions of Americans.
Since 1997, 39% of DWSRF assistance has been provided to systems serving fewer than
10,000 people, and 72% of all assistance agreements have been with these small systems.
Flexibility, innovation, and forward-thinking are hallmarks of this program, as the
numerous examples in this report illustrate.
Through the DWSRF's set-aside provisions, states can support the development and
implementation of key programs designed to advance the achievement of the Safe
Drinking Water Act's ambitious public health protection objectives. The DWSRF
is unique in offering the states this flexibility to tailor a mix of infrastructure and
programmatic investment that best meets their specific circumstances and priorities.
Through 2007, the states have invested some $1.4 billion in these set-aside activities.
Ensuring the long-term sustainability of our nation's drinking water infrastructure is
a major challenge. The DWSRF offers states many tools to help meet this challenge.
Building on 10 years of proven success, the DWSRF program is moving forward to help
ensure sustainable public health protection for 21st century America.
I welcome this opportunity to share with you the decade of accomplishments that makes
the DWSRF an important and effective program.
Sincerely,
Benjamin H. Grumbles
Assistant Administrator
Office of Water
-------
ntroduction
For 10 years, the Drinking Water State Revolving Fund (DWSRF) has enabled communities
throughout the nation to make affordable, long-term investments in sustainable public health
protection for millions of Americans.
Congress established the DWSRF in the 1996 Safe
Drinking Water Act (SDWA) Amendments in order
to provide states with a financing mechanism to
ensure safe drinking water. The DWSRF is designed
to finance investments in infrastructure and to support
the key initiatives introduced in the Amendments,
including ensuring the technical, managerial, and
financial capacity of drinking water systems; achieving
sustainable infrastructure; and preventing drinking water
contamination. Each state program targets the drinking
water systems that have the most significant public health
and financial needs. At the same time, states can direct
resources as they see fit to provide public water systems
(PWSs) with the necessary tools and knowledge to avoid
future public health problems.
Since the initial $1.2 billion federal commitment in
1997, the DWSRF has grown into an accessible and
efficient multi-billion-dollar funding source. In 1997
and 1998, states provided $339 million in assistance
through 170 agreements. In the 8 years since, states have
provided $12 billion in assistance through nearly 5,200
loan agreements. The fund's summary statement (Exhibit
2), provides an overview of its strong growth.
This annual report documents the DWSRF program's 10
years of remarkable success and rapid growth. The report
details how states and EPA made the DWSRF a:
• Critical source of funding for public health protection
for communities most in need (Section 1: Public
Health Success).
• Financially successful and robust lending program
(Section 2: Financial Success).
• Key contributor to the sustainability of the nation's
drinking water infrastructure (Section 3: Achieving
Sustainable Infrastructure).
• Dynamic program that will evolve to meet the needs
of drinking water systems and state programs in the
future (Section 4: Future of the DWSRF).
For 10 years, the DWSRF has enabled drinking water systems to make
affordable investments in critical infrastructure
> Over $350 million
distributed in
federal grants
00
> Funds available
exceed $1 billion
> Percentage of
grants reserved for
set-asides peaks at
18.6%
> 100^ project
completed
> Value of binding
commitments
passes $1 billion
1,000^ assistance
agreement signed
For the first time,
annual projects
surpass $1 billion
-------
DWSRF 2007 Annual Report
Exhibit 2: DWSRF National
Fund Activity -
Annual Fund Activity
Federal Capitalization Grants
State Matching Funds
New DWSRF Funds Available for Assistance
Project Commitments (Executed Loan Agreements)
Number of Loans/Projects Financed
New Set-Aside Funds Available for Assistance
Project Disbursements from the Fund
Cash Draws from Federal Capitalization Grants (Fund)
Cash Draws from Set-Asides
Cumulative Fund Activity
Federal Capitalization Grants
State Matching Funds
DWSRF Funds Available for Assistance
Project Commitments (Executed Loan Agreements)
Number of Loans/Projects Financed
Set-Aside Funds Available for Assistance
Project Disbursements from the Fund
Cash Draws from Fund
Cash Draws from Set-Asides
Performance Summary
Estimated ($ Millions)
2007
796.0
118.7
1,626.9
1,630.1
538/596
117.7
1,644.9
816.6
128.9
8,129.0
1,875.0
14,420.0
12,629.5
5,346/5,555
1,366.6
10,126.7
5,487.0
962.8
Statement
2006
777.3
166.4
1,639.4
1,664.0
541/585
135.3
1,472.3
744.1
124.1
7,333.0
1,756.3
12,793.1
10,999.4
4,768/4,959
1,248.9
8,481.7
4,670.4
833.9
1997
64.7
28.6
83.2
0.9
1/1
10.1
0.0
(0-3)
0.3
64.7
28.6
83.2
0.9
1/1
10.1
0.0
(0-3)
0.3
Source: EPA's DWSRF National Information Management System (DWNIMS)
Finally, this report presents detailed summary financial
statements for the national program (Section 5: Financial
Details).
DWSRF Program Accomplishments
Since 1997, states and EPA regions have worked to give
drinking water systems across the country the financial,
technical, and managerial means to provide safe drinking
water for current and future generations. Today, the DWSRF
is a cornerstone of EPA's efforts to promote and support
sustainable drinking water infrastructure.
In the past decade, states loaned $12.6 billion for 5,555
projects. They also targeted significant special assistance to
small drinking water systems and disadvantaged communities
(which often struggle to meet the health-based standards
of the SDWA), enabling them to implement long-term
strategies to build and maintain technical, managerial, and
financial capacity. Over the life of the program, 39% of all
DWSRF funds were provided to small drinking water systems
(those serving fewer than 10,000 persons). More significantly,
72% of all assistance agreements have been with these small
drinking water systems.
> Annual projects
funded exceed 600
for the first time
> Over $5 billion in
total funds now
available
Total assistance to
small systems hits
$2 billion
> Annual fund
disbursements
exceed $1 billion
no
—^ > 99% of annual
available funds
^^ loaned for the first
CN time
> Over $5 billion
in projects started
since 1997
^^ > Investment in the
° DWSRF exceeds
O $10 billion
Principal and
interest repayments
pass $1 billion
-------
Introduction
In addition, 25% of all assistance agreements have been with
disadvantaged communities, to which states often offer a mix
of low-interest (or no-interest) financing, longer repayment
terms, and principal forgiveness.
As the need and demand for DWSRF funding have grown,
states have developed increasingly innovative ways, including
leveraging, to maximize and use the available funds. States
have used set-aside funding to increase the impact of the
funds and to sustain day-to-day program operation.
The program's flexibility has also enabled EPA and states to
respond to unexpected contamination outbreaks and natural
disasters and to emerging issues and concerns such as climate
change, water scarcity, and security threats.
Leveraging Additional Funds
Twenty states have used their DWSRF capitalization grants
and repayments from borrowers to leverage additional
funds from the bond market. As a result, these states are
able to meet even greater levels of demand for DWSRF
funding. The decision to leverage is based on the balance
of the present demand for funds with the costs to the state
program of repaying leveraged dollars. To date, states have
leveraged an additional $3.4 billion for DWSRF-funded
projects.
Financial Success and Public Health Success
The DWSRFs ultimate purpose is to finance sustainable,
long-term public health protection. The program's ability to
fund projects that protect public health depends on financial
success and growth. Since its inception, the DWSRF has
achieved significant public health and financial successes. The
fund's value has increased rapidly, and the DWSRF maintains
a reputation as a sound federal and state investment. This
financial success is particularly noteworthy given the
historically low interest rates in the public and private
financing markets during the past 10 years. Drinking water
systems and communities that take advantage of these loans
should be on solid financial ground in the future because of
the savings provided by the DWSRF.
Financial success has enabled states to fulfill the program's
purpose of ensuring safe drinking water for millions of
Americans. Since 1997, states have awarded $4.9 billion
in loans to help systems in violation of the SDWA health-
based standards return to compliance. Another $6 billion has
gone to help drinking water systems maintain compliance or
comply with upcoming regulations.
The Future of the DWSRF Program
The 10 years of rapid, consistent growth of the DWSRF
program is a reflection of its vital importance. The program
will serve as an even more important and powerful public
health protection tool in the years to come as national
attention to drinking water quality and quantity grows. As
drinking water systems' needs and challenges increase and
evolve, the DWSRF will be poised to respond.
o
o
Small Systems
Technical Assistance
set-aside spending
exceeds $100 million
> Amount of funds
available exceeds $10
billion
\o
o
o
Average interest rate
hits low of 2.15% (2%
below market rate)
> Record assistance
($1.67 billion) pushes
cumulative assistance
past $10 billion
IV
O
O
States sign their 5*000™
assistance agreement
> Over 3,500 projects
now complete
-------
1997-2007 Highlights
Funds Available
Loan Agreements
Value of Loans
Fund Disbursements
stance as % Funds Available 94%
Set-Aside Spending Rat
ate 73%
Return on Federal Investment 111%
DWSRF 2007 Annual Report
1. Public Health Success
A safe and secure supply of drinking water is essential to ensuring public and
environmental health in every community. The DWSRF is committed to funding
drinking water infrastructure projects necessary to protect public health. In 10
years, the financial success of the DWSRF programs has ensured the availability of
DWSRF funding to protect public health for millions of Americans nationwide.
Washington
Washington State Department of
Health
Has a "Distressed County"designation based
on unemployment history; an economically
distressed county is one with a 3-year history of
unemployment 20% greater than the statewide
average.
Eyartment of Environmental Quality
veloped a screening tool that
Iks the application reviewer
through a series of indicators to
assess the capacity of potential borrowers.
To achieve this objective, the structure and
rules of the DWSRF favor PWSs most in
need of assistance: small, disadvantaged,
and out-of-compliance community water
systems (CWSs). To identify the most
critical projects, states use priority ranking
systems to compile annual project priority
lists (see text box). Every state takes
advantage of the program's flexibility to
tailor its loan assistance to address specific
challenges that its drinking water systems
face. In addition to loans, DWSRF set-aside
funds provide each state with powerful,
flexible tools with which to assist drinking
water systems.
Project Priority Lists-
states are required to give
priority to projects that:
1. Address the most serious
risks to public health
2. Are necessary to ensure that
a PWS can meet the SDWA's
health-based drinking water
standards
3. Assist the PWSs most in need
on a per-household basis
lent of Environmental
it/on; Alaska
iciently evaluate DWSRF
Millions Protected
As the value of the DWSRF has grown, the number of people who have benefitted
from DWSRF loans has increased. The number of consumers served each year by
systems that received DWSRF assistance increased by more than 300% from 1998
to 2007- In 2007 alone, the DWSRF assisted drinking water systems serving 17%
of the population served by CWSs (Exhibit 3), which translates conservatively to
an estimated 40 million people. In 2007, 99% of total assistance provided went
to CWSs. These systems have the greatest impact on public health, particularly
for chronic health threats. Thousands of systems and millions of Americans also
have better public health protection as a result of efforts funded through state
DWSRF set-asides.
Awards Recognizing Sustainable Public
Health
The DWSRF biennially recognizes one state in
each region that has an outstanding DWSRF
program and has implemented innovative
practices that have furthered the program's
public health goals.
Exhibit 3: Annual Percent of Population Served
by CWSs that Received DWSRF Assistance
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
-------
Public Health Success
Public Health and Infrastructure
Needs
The relationship between public health
and infrastructure needs is complex; the
PWSs that have the most numerous and
expensive infrastructure needs are not
necessarily the PWSs that have the most
pressing public health needs, which is the
focus of the DWSRE The percentage of
DWSRF funds that go to CWSs serving
fewer than 10,000 persons (39%) is greater
than the percentage of total need attributable to these small systems (28%), as
identified in the most recent (2003) Drinking Water Infrastructure Needs Survey
and Assessment (DWINSA) (Exhibit 4). This is consistent with the DWSRF's
public health objectives—small PWSs typically have fewer financing options
and the most difficulty providing safe drinking water because of deficiencies in
technical, managerial, and financial capacity.
The projects that receive the majority of DWSRF funding are not fully representative
of the need identified in the 2003 DWINSA. Treatment plants and distribution
pipes are critical—and expensive—drinking water system components. EPA
estimates that storage, transmission, and distribution account for 75% of drinking
water system infrastructure needs (Exhibit 5), while treatment plants account for
only 19% of need. Yet projects to upgrade central treatment have received as
much DWSRF financing as pipe-related projects.
Exhibit 4: Total Needs and Cumulative DWSRF
Assistance by System Size
Population <10,000 Population >10,000
Estimated 2003-2022 Need from 2003 DWINSA
Cumulative DWSRF Assistance
Exhibit 5: Percentage of Need (from 2003 DWINSA) and
DWSRF Assistance ($) by Project Category
Source • Storage,Transmission, & Distribution
Treatment Purchase, Restructuring, & Other
Region 10 Award Winner: Oregon
Health Services, Department A
of Human Services; Economic
and Community Development
Department; Department of
Environmental Quality
One of the primary objectives of Oregon's DV
program isaffordability.The state has develop'
a special assistance program for disadvantaged
communities through which borrowers can qualify
for loans at 1% interest for 30 years, with up to
$250,000 of principal forgiveness. Communities
can conduct their own income surveys if they
feel that U.S. Census data do not correctly reflect
their economic situations.The result has been a
remarkable $68 million in additional loans to more
than 40 disadvantaged communities.
Federal $133 M
Administrative (4%)
$4.4 M
State Program Mgmt (10%)
$5.7 M
Small Systems TA (2%)
$790,000
1452(k) Activities (15%)
$4.0 M
-------
1997-2007 Highlights
DWSRF 2007 Annual Report
Funds Available
Loan Agreements
Value of Loans
Fund Disbursements
$1,160 M
unds Available 88%
Set-Aside Spending Rate
Return on Federal Investment 140%
Department of Public Health
Used set-aside funds to issue
loans for PWSs to purchase land
and conservation easements
and implement measures to
protect vulnerable sources from
contamination.
department of Health;
>flfe Drinking Water
branch; Wastewater
Corporation using set-aside funds to provide
.lining courses to more than 100 water system
managers and 300 operators.
Division of Environmental
Protection; Office of Financial
Assistance
This difference is due to the DWSRF's design—upgrading treatment facilities
delivers public health protection to all consumers and enables drinking water
systems to meet new, more stringent regulations in the long term. The public
health gains from rehabilitating distribution systems, though important, are not
as significant as those realized by upgrading treatment capability. In addition,
drinking water systems are
more likely to be able to fund
distribution system capital costs
on an annual basis using cash and
available reserves. Investments in
treatment infrastructure tend to
be more capital intensive over a
short period of time; therefore,
drinking water systems often rely
on external sources of funding to
finance such projects. Many of
these central treatment projects
would not have been possible
without DWSRF financing.
Targeting Systems Most in Need
Just as each state prioritizes projects according to public health impact, each state
also targets assistance to the drinking water systems that typically need the most
help to provide safe drinking water: out-of-compliance, small, and disadvantaged
systems. These systems often face
a difficult dilemma—they cannot
overcome their challenges without
investing in infrastructure, but they
cannot access financing because of
the challenges they face. DWSRF
assistance ensures that these drinking
water systems are not overlooked and
that public health in all communities,
large and small, is protected.
Out-of-Compliance Systems
To address the most immediate risks
to public health, states give priority
to CWSs that are out of compliance,
or at risk of being out of compliance,
with federal drinking water standards.
The vast majority of DWSRF loans are
Talent, Oregon
The City of Talent's water system
serves 5,050 persons and was previ-
ously using some of the lowest qual-
ity water sources in the state.The City
suffered a Cryptosporidiosis outbreak
in the early 1990s and preventing an-
other outbreak was a constant chal-
lenge due to seasonal changes in raw
water quality. With a $2 million DWS-
RF loan, the City abandoned their low
quality water sources and connected
to the larger City of Phoenix water
system. The DWSRF loan covered the
costs of construction and necessary
infrastructure upgrades, ensuring
that Talent's residents have access to
safe drinking water.
for projects to help CWSs achieve or
maintain compliance with current and future drinking water rules (Exhibit 6).
In each of the last 3 years, more than 30% of all assistance agreements have been
with drinking water systems that were out of compliance with drinking water
rules, posing a significant health risk to their customers. States also can use their
DWSRF programs to provide expedited assistance in case of emergencies.
-------
Public Health Success
Small Drinking Water Systems
Small drinking water systems often lack the economies of scale and the technical,
managerial, and financial capacity that larger systems have to reliably provide safe
drinking water. Consequently, small PWSs are more likely to violate drinking
water regulations. In 2007 alone, 50,013 drinking water systems serving fewer
than 10,000 persons (33% of all small PWSs) reported at least one health-based
standard, monitoring and reporting, or other violation, while only 1,239 larger
systems (30% of all large PWSs) did so. In a nation where 97% of all drinking
water systems serve fewer than 10,000 persons, making sure that these systems have
access to the resources that they need is essential to public health protection. The
DWSRF helps ensure that small drinking water systems do not compromise the
health of their customers because they lack access to affordable capital financing.
Region 9 Award Winner: Arizona
Water Infrastructure Finance Authority
(WIFA) I
WIFA has formed valuable ^
partnerships that enhance the
DWSRF program's ability to reach
water systems in need of project financing. WIFA is
the lead agency for the Rural Water Infrastructure
Committee, an informal partnership of various
federal and state agencies, including U.S.
Department of Agriculture Rural Development
and the North American Development Bank. WIFA
provides loans, grants, and technical assistance
primarily to small, rural communities. Joining forces
with other financing sources has reduced workload
and increased local participation. Arizona was the
first state to award a DWSRF loan to a tribal nation
and continues its efforts to provide assistance to
tribes by working with the Intertribal Council of
Arizona.
In every year of the program, more
DWSRF assistance agreements have
been with small drinking water
systems than with large systems.
Since 2000, the DWSRF program
has provided (on average) more than
400 small drinking water system
agreements each year, compared to
approximately 150 agreements with
large systems. Most states also use
set-aside funds to target additional
assistance to help small drinking
water systems access DWSRF
financing. For example, Florida,
Massachusetts, New Hampshire,
and California fund circuit riders to
help these systems prepare DWSRF loan applications. Because of these and other
efforts, thousands of small drinking water systems that otherwise would not have
had access to financing have been awarded affordable loans from the DWSRF to
complete critical infrastructure projects.
Federal $108 M
Exhibit 6: Assistance for Compliance with SDWA
2005
2007
To
To
To
Meet Future Requirements
Maintain Compliance
Achieve Compliance for Systems Out of Compliance
Arizona's Cumulative DWSRF Activity
Arizona's Set-Aside Summary
62% Exp
18% of
Capitalization
Grant
Cumulative Spending
Administrative (4%)
$4.7 M
State Program Mgmt (10%)
$1.9 M
SmallSystemsTA(2%)
$830,000
1452(k) Activities (15%)
$4.6 M
-------
1997-2007 Highlights
DWSRF 2007 Annual Report
Funds Available $1,000 M
Loan Agreements
Value of Loans
Fund Disbursements
istance as % Funds Available 85%
Set-Aside Spending Rate 69%
Return on Federal Investment 170%
Montana
Department of
Environmental Quality;
Department of Natural
Resources and Conservation
Contracted with Montana State University
through a set-aside to create a CD-ROM to
provide training on source water assessment and
delineation.
Department of Health; North
Dakota Public Finance Authority
Collaborates with the state Rural Water
-ssociationand Rural Community Assistance
Programs to target assistance to small PWSs.
Disadvantage^ Communities
Drinking water systems that serve disadvantaged communities often lack both
access to much-needed infrastructure financing and the resources to adequately
maintain their existing system components. As a result, these PWSs face significant
challenges in complying with long-standing and new drinking water rules. In
addition to ranking disadvantaged communities higher on project priority
lists, many states provide these communities with a mix of longer repayment
terms, lower interest rates, and principal forgiveness. In the past decade, 1,411
agreements have been signed with disadvantaged communities, totaling $2.2
billion in assistance. Almost 650 of these agreements have repayment terms in
excess of 20 years. In addition, nearly 600 loans have been provided totaling over
$300 million in principal forgiveness (Exhibit 7).
Set-Asides Expand the Public Health Impact
Each state reserves a portion of its annual capitalization grant to fund programs
in support of safe drinking water. These programs extend the impact of the
ce agreements going to
junities have repayment
periods greater than 20 years.
on of Drinking I
consolidation efforts
set-aside funds to increase '
he number of customers per
eatment facility while raising revenues and
educing treatment costs.
minq
s funds from the 4% set-
Je to offset operating costs, ensuring that the
program can continue without significant cost
:ncreases to users of the fund.
DWSRF, providing help to drinking
water systems in addition to those
that receive loans. States can also
use set-aside funds to meet systems'
individual needs. This tailored
approach helps states allocate funds
where they will have the biggest
impact on public health.
Over the past 10 years, states
have expended $963 million to
implement a variety of programs
with the goal of improving public
health protection. Although in the
past states had set aside more funds
Lyons, Colorado
The Town of Lyons'drinking water sys-
tem was unable to maintain compli-
ance with current standards and regula-
tions. The state determined this system
to be a potential acute health hazard.
To serve the public with safe drinking
water, Lyons connected to the City of
Longmont, which had recently con-
structed a new water treatment plant.
With $4.9 million in DWSRF funds, the
systems consolidated and improved
the technical, managerial, and financial
capacity for both systems.
than they spent, expenditures of set-
aside funds have been increasing each year since 2004. The set-aside funds in
reserve peaked in 2006 at over $350 million, but in 2007 expenditures surpassed
Exhibit 7: Cumulative Assistance to
Disadvantaged Communities
All Assistance to Disadvantaged Communities
Extended Repayment (> 20 Years)
Principal Forgiven
-------
Public Health Success
Voice of Experience: Cynthia Dougherty, Director of EPA's
Office of Ground Water and Drinking Water
Cynthia Dougherty has been director of the National Drinking Water Program
since 1995.
"It's not often in federal government that you get the opportunity to see a
program start from the ground up and grow into a true success story. In the
mid-1990's, a Republican Congress and Democratic Administration looked
at the success of the Clean Water SRF (CWSRF) program and the challenges
facing PWSs. They worked together to create a new DWSRF program that,
while based on its older sibling, brought flexible new provisions to help
target funds where the needs were greatest and to address disadvantaged
communities. They allowed states to use some of their money to carry out
other activities—from capacity development to operator certification to
source water protection—that would support strong PWSs for the future.
Most states had no preexisting drinking water infrastructure financing
program. Over a short time period, they worked through how to structure
their programs, how to deal with similarities and differences with the CWSRF,
and how to decide whether and how much of the set-asides to use. This
report demonstrates how states have successfully worked through those
issues and developed thriving programs that will help ensure safe and secure
drinking water for the future. It is a program that I am proud of, as I am sure
are all who have worked in and with it since 1997."
Region 8 Award Winner: Colorado
Water Resources and Power
Development Authority; Water Quality
Control Division; Department of Local
Affairs - Division of Local Government
Colorado strives to provide the funds and support
to help its water systems finance key infrastructure
projects. Colorado aggressively leverages its Fund
and has created a disadvantaged community
program (for communities of 5,000 or fewer
persons) offering up to $2 million in loans at
interest rates as low as 0% over 30 years. CDPHE
has also been a leader in the creative use of the
15% set-aside, using funds to support source
water protection plan development, to create a
Drinking Water Excellence Program to enhance
operational capabilities of water systems, and to
implement a Radionuclide Abatement and Disposal
Strategy focused on assisting small water systems in
disposing of materials containing radionuclides.
Federal $126 M
the amount set aside as states implemented targeted, strategic programs to assist
their drinking water systems (Exhibit 8).
Colorado
DWSRF
There are four DWSRF set-aside categories. Each has a connection to public
health, and the programs they fund protect public health from source to tap.
States can reserve funds under each of the four set-asides at their discretion up to
the maximum limit.
Small Systems Technical Assistance (2% Set-Aside)
Up to 2% of a state's capitalization grant can be used to fund programs dedicated
to drinking water systems serving fewer than 10,000 persons. As noted previously,
smaller drinking water systems typically face greater challenges than larger systems;
states use set-aside funds to help small systems build the capacity they need to
Exhibit 8: Annual Set-Asides Reserved and Expended
Expended/Committed
Reserved
Cumulative Remaining Balance
'Colorado's Cumulative DWSRF Activity
et-Aside Summary
63% Expen
21% of
Capitalization
Grant
Cumulative Spending
Administrative (4%)
$3.0 M
State Program Mgmt (10%)
$4.0 M
Small Systems TA (2%)
$1.0 M
1452(k) Activities (15%)
$8.9 M
-------
1997-2007 Highlights
DWSRF 2007 Annual Report
Funds Available
Loan Agreements
Value of Loans
Fund Disbursements
$952 M
istance as % Funds Available 97%
Set-Aside Spending Rate 69%
Return on Federal Investment 214%
Iowa
Department of Natural
Resources; Iowa Finance
Authority
Developed an easy-to-use Web site to educate
consumers and program users and a loan
calculator showing the savings attributable to
the loan, among other tools.
Department of
Environmentall
comply with current and future drinking water rules and for other purposes. Florida
and Pennsylvania have used this set-aside to contract with technical assistance
providers to perform efficiency audits and provide leak detection services at small
drinking water systems. States have spent almost $14 million from this set-aside
in each of the past 3 years and spent more than reserved in both 2006 and 2007
(Exhibit 9).
Administrative and Technical Assistance
(4% Set-Aside)
States can set aside up to 4% of their
capitalization grants to provide direct
technical assistance to drinking water
systems and to administer their DWSRF
programs. Nationally, states have begun
spending down their reserves over the
past 2 years to reach out to drinking
water systems that need a DWSRF loan
but also need technical assistance to
create plans, apply for a loan, and move
forward (Exhibit 10).
Exhibit 9: Small Systems Technical Assistance Set-Aside
Annual Awards and Expenditures
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Awarded • Expended
Exhibit 10: Administrative and Technical Assistance
Set-Aside Annual Awards and Expenditures
$40
$35
$30-
.$25
$20
$15
$10
$5
$0
lllllllll
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Awarded • Expended
-------
Public Health Success
11
State Program Management (10% Set-Aside)
The 10% State Program Management set-aside can be used to fund state Public
Water System Supervision (PWSS) programs, which oversee all drinking water
activities in a state, thus providing improved public health protection to everyone
served by PWSs. These resources can also be used for source water protection
activities, capacity development initiatives, and operator certification programs,
all of which increase the ability of drinking water systems to provide safe, high-
quality drinking water. For the past 3 years, states have spent more than $43
million annually from this set-aside, more than from any other set-aside (Exhibit
11). States spent more than they reserved for the first time in 2007-
Local Assistance and Other State Programs (15% Set-Aside)
States can use up to 15% of their federal capitalization grant (although no more
than 10% for any one activity) to provide loans to acquire land or conservation
easements for protection of source waters, provide loans for the implementation
of voluntary, incentive-based source water quality protection measures, assist
PWSs as part of a Capacity Development Strategy, and assist PWSs with wellhead
protection. Since 2004, annual state spending under this set-aside (often referred
to as the l452(k) set-aside) has remained between $29 million and $35 million
(Exhibit 12). Although states can customize the use of all set-asides, states have
the most flexibility with the 15% Local Assistance set-aside. Delaware used this
set-aside to investigate the sources and extent of mercury contamination in Sussex
County. Tennessee used the set-aside to study the Memphis Sand Aquifer, a
ground water source under the direct influence of surface water in the eastern
part of the state.
Exhibit 11: State Program Management Set-Aside
Annual Awards and Expenditures
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Awarded • Expended
Exhibit 12: Local Assistance and Other State Programs
Set-Aside Annual Awards and Expenditures
In 1998 and 1999, states took advantage
of a 2-year window to reserve resources
for source water assessments.
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Awarded • Expended
Region 7 Award Winner: Kansas
Department of Health and
Environment (KDHE); Department
of Administration; Development
Finance Authority
KDHE continuously works to maximize assistance
to drinking water systems across the state and to
make the DWSRF program a model of effective
infrastructure financing. KDHE has formed
partnerships with other state agencies to help
streamline the loan process and market the DWSRF
program. Kansas Rural Water Finance Authority
staff review loan applications, allowing KDHE staff
to focus on the environmental issues affecting
communities.The state's Rural Water Association
also provides technical assistance and promotes
the DWSRF program to small drinking water
systems. KDHE has developed a flexible application
process for small water systems. Because these
systems often need to secure funding for an entire
project before they begin planning, KDHE may
enter into loan agreements before engineering
details are finalized.
Federal $11OM
Kansas'Cumulative DWSRF Activity
Kansa
-Aside Summary
9% of
Capitalization
Grant
Cumulative Spending
Administrative (4%)
$2.8 M
State Program Mgmt (10%)
$665,000
Small Systems TA (2%)
SUM
1452(k) Activities (15%)
$1.5 M
-------
1997-2007 Highlights
12
Funds Available
Loan Agreements
Value of Loans
Fund Disbursements
$1,284 M
$1,006M
iistance as % Funds Available 78%
Set-Aside Spending Rate
DWSRF 2007 Annual Report
Return on Federal Investment 139%
2. Financial Success
The goal of the DWSRF is to protect public health. The DWSRF achieves this
goal by financing sustainable drinking water infrastructure. The program's progress
in protecting public health hinges on the financial success of the DWSRF as a
lending institution. In its first decade, the DWSRF has been an incontrovertible
financial success, meeting or exceeding expectations.
Louisiana
Department of Health and
Hospitals
Regularly attends and markets the DWSRF
at the Louisiana Municipal Association's
annual convention, the Louisiana Police Jury
Association's annual convention, and the
Louisiana Rural Water Annual Training and
Technical Conference.
>epartment of Environmental
\a\ity; Water Resources
Using set-aside funds, contracts with t
ural Water Association to conduct at li
annual small drinking water system site visits to
'ielp improve system operation, management,
and compliance rates.
New Mexico I
uthority; Wei
Department
Helps drinking water systems
targeted for assistance prepare preliminary
engineering plans and specifications and
i K :t environmental reviews.
r Development Board;
Environmental Quality (TCEQ)
,
This section showcases this strong
performance from several perspectives,
including the investments made by
Congress and states into the funds,
how drinking water systems are eager
to use and invest these resources, and
the cycling and growing of resources
as drinking water systems repay their
loans. This section also demonstrates
the results of the DWSRF's financial
success, including healthy returns on federal and state investments, a significant
and growing share of the drinking water infrastructure financing market, and
fund perpetuity.
Investments in the DWSRF
In the past 10 years, the federal government has contributed $8 billion to the
DWSRF program ($7-2 billion net), and states have invested close to $2 billion
(through a 20% match of federal contributions). As shown in Exhibit 13, total
net federal and state contributions reached $9 billion in 2007- Over the past
5 years, new money channeled into the program has stabilized between $800
million and $850 million per year. EPA expects investments to continue in this
range for another decade.
States have accepted and excelled at the role of managing these monies. Nearly every
state goes beyond the minimum requirements and conducts a full, independent
audit of its DWSRF program. In addition to these stringent financial controls,
states manage efficient operations that keep administrative costs as a percentage
Exhibit 13: Cumulative Federal and State
Contributions to the DWSRF
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Net Federal • State Total
-------
Financial Success
13
of the assistance provided very low. In the past 4 years, states on average have
kept their overhead levels around 2% of the value of the loans provided (Exhibit
14), which is similar to the administrative costs of similar federal loan programs,
including the Clean Water SRF (CWSRF) in its first decade.
DWSRF Investing in Drinking Water Systems
The initial investments into the DWSRF are seed funds from Congress and states
to establish an ongoing program that allows drinking water systems to borrow
money at subsidized interest rates. Unlike grant programs, the DWSRF requires
drinking water systems (with the exception of some disadvantaged systems) to
repay their loans, which promotes full-cost pricing and preserves the federal and
state investment.
Region 6 Award Winner: Arkansas
Arkansas Natural Resources
Commission (ANRC); Department of
Health
ANRC collaborates with other state
and federal funding agencies to promptly and
comprehensively fund water system needs. ANRC
r isa charter member of and active participant in the
Arkansas Water/Wastewater Advisory Committee,
composed of state and federal funding and
regulatory agencies with an interest in or oversight
of state water and wastewater projects. Through
participation in project review and coordination
with other agencies, ANRC has helped to ensure
funding for as many eligible and viable projects as
possible to meet state water quality improvement
goals. ANRC has also worked to maintain demand
for DWSRF loans, in part by lowering the interest
rate from 3.25% to 2.75% for a 3-month period.
ANRC will need to leverage funds to keep pace
with the increased demand for DWSRF assistance.
Unlike the interest drinking water systems pay when financing projects through
bonds or commercial borrowing, the interest paid on DWSRF loans is retained
in the program and made available to other water systems rather than kept as
profit or earnings. Drinking water systems benefit by saving money when they
borrow from the DWSRF, and
other drinking water systems
benefit by being able to borrow
the repaid federal and state
investment.
States work closely with drinking
water systems to provide
financing packages to ensure
that utilities receive the funding
they need on terms they can
afford. By putting money into
the hands of a drinking water system, states encourage public health protection
and start the cycling of resources that will grow and expand the DWSRF. Not
surprisingly, the program developed at a slower pace in the first 2 years as states
laid their programs' foundations. In the ensuing years, performance and growth
have been impressive as states have accelerated the pace of assistance.
Exhibit 14: Ratio of Annual State Administrative
Costs to Annual Assistance Provided
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Federal $91 M
Arkansas
,
rkansas'Cumulative DWSRF Activity
Arkansas' Set-Aside Summary
59% Exp(
32% of
Capitalization
Grant
Cumulative Spending
Administrative (4%)
$3.7 M
State Program Mgmt (10%)
$6.3 M
Small Systems TA (2%)
$940,000
1452(k) Activities (15%)
$5.8 M
-------
1997-2007 Highlights
Funds Available
Loan Agreements
14
DWSRF 2007 Annual Report
Value of Loans
Fund Disbursements
$2,812 M
$2,303 M
$2,01 OM
stance as % Funds Available 82%
Set-Aside Spending Rat
ate 72%
Return on Federal Investment 184%
Illinois
Environmental Protection Agency
Established a program to delineate
recharge areas for CWS wells that
draw from unconfined aquifers.
Department of Environmental
Quality; Municipal Bond Authority
With help from set-aside funds,
eveloped a statewide program
) help water systems manage abandoned wells
iithin wellhead protection areas.
ofHealth
Encourages the regionalization of
email Hfinking water systems so they may benefit
epartment of Natural Resources;
epartment of Administration
wses set-aside funds to contract
with the state Rural Water Association to
hold informal forums for operators to dis'
pertinent issues.
Assistance
The value of the loans provided by states has been increasing along with the
amount of new funds available (Exhibit 15)- Of the nearly $14.5 billion in funds
available, states have already issued $12.6 billion in assistance to drinking water
systems across the country. The federal government has made net investments
of $7 billion in the DWSRF, and the states and systems have leveraged those
resources to create an additional $5 billion in assistance—an increase of nearly
60%. Overall, states have provided nearly 90% of the total funds available to
drinking water systems as direct assistance.
Set-Asides
States and EPA have also effectively used set-aside resources to protect public
health. Exhibit 16 shows the growth in set-asides reserved and expended. States
have increased their spending from set-asides each year since 2004, and in 2007
they spent down the set-aside reserves they had accumulated. By accelerating the
spending of the set-asides, states are putting the funds to their intended use and
thus protecting public health.
Disbursements
Awarding loans to drinking water systems is just the first step in moving money
through the DWSRE Assistance in the form of a loan essentially becomes a line of
credit that systems can draw from as they build the project for which they needed
the loan. Drinking water systems are reimbursed as they incur eligible project
costs; these payments made by states from the loan funds are called disbursements.
Exhibit 15: Cumulative DWSRF Assistance
Available and Assistance Provided
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
I New Funds Available ••• Assistance Provided
Exhibit 16: Cumulative Set-Asides Reserved and
Expended
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Reserved ••• Expended
-------
Financial Success
15
Disbursements represent the actual flow of dollars from state programs to drinking
water systems. By definition, disbursements lag assistance because of the time it
takes to implement an infrastructure project once a drinking water system has
received a loan. In 2007, states continued to accelerate the pace of disbursements,
decreasing this lag time. States have disbursed over $10 billion of the $12 billion
committed (Exhibit 17).
Project Starts & Completions
Another measure of financial success is the progression of projects from funding
(having received a loan) to the start of construction to the completion of
construction. The value of completed projects jumped in 2007, and the value
of projects funded and started has steadily increased since the inception of the
DWSRF program. These trends showcase the success that states are having in
using the tools and expertise of their mature programs to help drinking water
systems move from receiving a loan to successfully implementing infrastructure
upgrades.
Region 5 Award Winner: Indiana
Indiana Finance Authority (IFA); State ^
Revolving Loan Fund Program
IFA has greatly improved Indiana's
DWSRF program performance
since its inception in 2005. The f
state created project summaries that highlight
compliance, economic, and public health benefits
for each loan, which are included in the program's
annual report. These summaries served as an initial
model for the ongoing effort to develop a national
DWSRF benefits report. IFA has used creative
lending approaches to reach out to borrowers who
were unable (due to capacity constraints) to get into
the fundable range on the state's project priority list.
IFA developed a pooled loan program that allows
communities to borrow at the state's AAA borrowing
rate—well belowthe market rate.The IFA issued a
total of six pooled loans in 2006 and 2007 for $52
million.
Recycling Funds
Once borrowers complete their infrastructure projects, they begin principal and
interest payments, which are a driving force for DWSRF growth. These repayments
ensure that affordable financing will be available for other drinking water systems.
The financial success of the DWSRF is no more evident than when examining the
rate of acceleration of principal and interest repayments as well as other sources of
operating revenue (such as fees and interest income on fund balances, as shown
in Exhibit 18).
Exhibit 17: Cumulative DWSRF Assistance
Provided and Disbursements
$14
1997 1998 1999 2000 2001 2002 2003 2004 2005
I Assistance Provided • Disbursements
2006 2007
Exhibit 18: Annual Assistance from Recycled
Funds
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Assistance Provided I Recycled Funds (Principal and Interest
Payments and Fee Income)
Federal $124 M
Investments
in Indiana's
DWSRF
Indiana's Cumulative DWSRF Activity
Indiana's Set-Aside Summary
63% Expe
7% of
Capitalization
Grant
Cumulative Spending
Administrative (4%)
$1.5M
State Program Mgmt (10%)
$1.2M
Small Systems TA (2%)
$830,000
1452(k) Activities (15%)
$2.2 M
-------
1997-2007 Highlights
16
DWSRF 2007 Annual Report
Funds Available
Loan Agreements
Value of Loans
Fund Disbursements
$1,528 M
$1,364 M
$1,130M
Distance as % Funds Available 89%
Set-Aside Spending Rate 80%
Return on Federal Investment 141%
Alabama
Department of Environmental
Management
Used the 2% set-aside to conduct
site visits and hold training sessions, which were
attended by more than 300 water system board
members.
Florida
Department of Environmental
Protection
Return on Investment
The cycling of money through the DWSRF and the efforts by states to leverage
their funds to maximize resources have yielded impressive returns that have grown
significantly since the inception of the program. A more narrow definition of
return on investment compares outlays (dollars drawn from the federal treasury)
to disbursements (dollars sent from states to drinking water systems). This federal
return on investment has grown steadily, as shown in Exhibit 19- Congress
has generated more than $10 billion in actual
infrastructure improvements at a cost of just under
$6.5 billion. The annual federal return has increased
from around 160% in 2000 to nearly 200% in 2007;
the cumulative return has also been increasing since
2002 and neared 180% in 2007-
. : lished a loan program for land acquisition
or conservation easements for sites within a
delineated source water or wellhead protection area
and consistent with approved county water supply
th Carolina
Department of Environment and
^tural Resources
i Carolina
?nt of Health and Environmental
"inet and Control Board
enness
Department of Environment and
Conservation; Tennessee Comptroller of the Jreas,
Has the highest set-aside spending rate in Region 4
at 107%.
Rather than compare dollars changing hands, a
broader measure of return on investment compares
the loan assistance for drinking water systems to
the federal contributions to the loan funds—and
yields even more impressive results. In 2007, net
federal contributions continued to hover near $700
million while the total assistance provided exceeded $1.6 billion. The net federal
contribution of $7-2 billion has generated more than $12 billion in affordable
infrastructure investments, a return of more than 200% (Exhibit 20).
Exhibit 19: Cumulative Disbursements and
Annual Federal Outlays
2000 2001 2002 2003 2004 2005 2006 2007
I Disbursements • Federal Outlays
• Cumulative Federal Return on Investment ($ to Systems)
Exhibit 20: Cumulative Assistance and
Cumulative Net Federal Contributions
$14
2000 2001 2002 2003 2004 2005 2006
I Assistance Provided • Net Federal Contributions
• Assistance Provided as a % of Capitalization Grant
-------
Financial Success
17
Region 4 Award Winner: Georgia
Environmental Facilities Authority (GEFA); 1
Environmental Protection Division
The net result of this robust increase is shown in Exhibit 21. The growth in annual
assistance is driven by the increase in loan repayments made by early beneficiaries
of the DWSRF. The portion of total annual assistance that could come from
water system repayments has increased each year to 45% in 2007- The result of
this recycling of funds is increasing growth in funds available, with repayments
playing an ever increasing role.
State Return on Investment
The states' returns on investment (comparing assistance provided to state
contributions) have been even more extraordinary. From an investment of less
than $2 billion, states have harnessed federal and recycled resources to create
more than $12 billion in capital improvements (Exhibit 22). States produce $6
in infrastructure assistance for every $1 they put into the DWSRF, if calculated
as a rate of return.
GEFA targets DWSRF resources to
the state's many small drinking water
systems. As of June 2007, the state had provided
over $26 million in principal forgiveness to 64
communities, eliminating approximately 1,500
underperforming or contaminated private wells
and creating storage facilities for 4.25 million
gallons of water. GEFA markets its loan programs
through "GEFA 101 Marketing and Informational
Seminars," which provide a forum for the local
government and engineering community to
discuss program requirements, specific projects,
and success stories. These seminars have resulted in
several new projects.
Market Position
In just 10 years, the DWSRF has grown to occupy an important niche in the
drinking water infrastructure financing market. The 2002 Census of Governments
estimated that publicly-owned CWSs borrowed $ 13 billion to invest in drinking
water infrastructure in 1997, the same year the DWSRF was established. Five years
later, municipal drinking water systems borrowed $16 billion for infrastructure,
and the DWSRF accounted for approximately 8% of this borrowing.
Exhibit 21: Cumulative DWSRF Revenues
from Operations and Repayments
$4.0
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Interest Payments • Principal Repayments
Fee Income Interest Earnings
Exhibit 22: Cumulative State Contributions and
Assistance Provided
$14 700%
2000 2001 2002 2003 2004 2005 2006
I Assistance Provided • State Contributions
Assistance Provided as a % of State Contributions
Federal $157 M
.gia's
DWSRF
'
Georgia's Cumulative DWSRF Activity
Georgia's Set-Aside Summary
76% Expen
24% of
Capitalization
Grant
Cumulative Spending
Administrative (4%)
$4.9 M
State Program Mgmt (10%)
$12.1 M
SmallSystemsTA(2%)
$2.1 M
1452(k) Activities (15%)
$9.1 M
-------
1997-2007 Highlights
18
DWSRF 2007 Annual Report
Funds Available
Loan Agreements
Value of Loans
Fund Disbursements
istance as % Funds Available 91 %
Set-Aside Spending Rate 75%
Return on Federal Investment 154%
•
Health and Social Services; Department
of Natural Resources and Environmental
Control
Using set-asides funds, contracted with a
community college to provide operator
certification training.
Maryland Water Quality Financing
Administration; Water Management
Administration
sed set-aside funds to update the SDWIS data
management system.
There are no comprehensive data on the market for drinking water system
financing, but several sources show that the DWSRF is meeting existing
demand that had not been met through traditional financing sources. The 2000
Community Water System Survey (CWS Survey) estimated that drinking water
systems invest approximately $10 billion per year in capital improvements. The
CWS Survey estimated that DWSRF financing accounts for approximately 5% of
overall capital investment in drinking water infrastructure; systems rely primarily
on current revenue (39%) and borrowing from the private sector (42%). However,
a closer examination of CWS Survey data shows how the DWSRF has filled an
important niche:
• 17% of publicly-owned CWSs used the DWSRF to finance a portion of their
capital needs;
• 11 % of total capital funds for publicly-owned CWSs came from the
DWSRF;
• 15% of CWSs serving fewer than 500 persons and 23% of CWSs serving 500
to 3,300 persons made capital investments through the DWSRF; and
• 20% of capital improvements for publicly-owned CWSs serving 10,000 or
fewer persons were financed through the DWSRF.
(Source: EPA 2000 CWS Survey)
The DWSRF has established itself as the largest federal financing program
for drinking water infrastructure. From 2004 to 2006, the U.S. Department
of Agriculture's Rural Utilities Service (RUS) provided on average about $1.5
billion in loans and grants per year to 1,200 rural utilities for drinking water
and wastewater projects. (The DWSRF averaged $1.6 billion for drinking water
projects alone in the same period.) In addition, the U.S. Department of Housing
and Urban Development's Community Development Block Grant (CDBG)
Program's total disbursements for water and wastewater in 2003 amounted to
$479 million.
The DWSRF does not compete with these sources; EPA encourages cooperation
and joint funding of projects to meet the needs of local drinking water systems.
However, the dramatic growth of the DWSRF ensures that it will continue to be
the largest source of federal funding for drinking water systems for the foreseeable
future.
Future Outlook: Growth in Perpetuity
The concerted efforts of EPA, states, and drinking water systems have put the
DWSRF on track for financial success in perpetuity. As principal and interest
payments grow because of the increase in assistance, the number of years needed to
repay the outstanding debt at that year's repayment pace is anticipated to decrease
further and approach 20 years, the most common length for DWSRF loans.
Exhibit 23 forecasts the federal return for additional dollars invested in the fund.
Based on current trends, each additional federal dollar could provide at least $10
-------
Financial Success
19
of assistance by 2017, which is consistent
with the growth of the CWSRF in its second
decade.
The projected increase in new funds for
projects also shows robust acceleration.
Exhibit 24 projects the increase in new
funds available from approximately $1.6
billion in 2007 to more than $3 billion in
the next decade. This growth is not driven by
increases in contributions from the federal or
state governments; rather, it is a result of the
collective effort of drinking water systems as
they repay their principal and interest.
Region 3 Award Winner: Virginia
Department of Health (VDH), Office of
Drinking Water; Resources Authority
The Virginia DWSRF program has
consistently been a national leader in providing
assistance to small, disadvantaged PWSs. VDH
helps communities gain access to the assistance
they need through partnerships and agreements
with other agencies and organizations throughout
the state. VDH has also developed an innovative
receivership program designed for drinking water
systems lacking managerial and technical capacity,
and has creatively used DWSRF set-asides to help
provide additional technical and financial assistance
to disadvantaged drinking water systems.
Conclusion
The DWSRF's public health benefits are possible because of the strong financial
performance of the DWSRF program. These public health benefits are increasing
due to the states' success in combining the support from the federal and state
governments with the growing loan repayments to create true revolving funds.
The financial trends of the DWSRF over the past decade are impressive and
should remain so as the program continues to mature.
Return on Federal
Investment in
Virginia
Federal $141 M
Investments
in Virginia's
DWSRF
Exhibit 23: Future Projection of Federal Multiplier1
$35 $4.5 j?
'99 '01 '03 '05 '07 '09 '11 '13 '15 '17
Cumulative Assistance •*• Federal Multiplier
Cumulative Federal Net Contribution
Exhibit 24: New Funds Available for Projects1
$3.5
'97 '99 '01 '03 '05 '07 '09 '11 '13 '15 '17
• Annual Net Investments *• Annual New Funds for Projects
• Annual Repayment of Principal and Interest
7. Modeled projections based on DWSRF Financial Planning Module and additional modeling ofDWNIMS data.
Assumes annual capitalization grant is $842 million through 2018.
Virginia's Cumulative DWSRF Activity
it-Aside Summary
14% of
Capitalization
Grant
Cumulative Spending
Administrative (4%)
$5.0 M
State Program Mgmt (10%)
$5.5 M
Small Systems TA (2%)
$1.8 M
1452(k) Activities (15%)
$5.5 M
-------
1997-2007 Highlights
20
DWSRF 2007 Annual Report
Funds Available
Loan Agreements
Value of Loans
Fund Disbursements
$2,686 M
$2,435 M
$1,894M
istance as % Funds Available 91 %
Set-Aside Spending Rate 91%
Return on Federal Investment 279%
New Jersey
Department of Environmental Protection;
Environmental Infrastructure Trust
Worked with technical assistance
providers to develop an outreach program that
helps drinking water systems understand the
DWSRF Program's purpose and benefits and
apply for funding.
Department of Health (Departamento , —
deSalud); Government Development
"ink for Puerto Rico (Banco
'rubernamental de Fomento para Puerto Rico), Puerto
•'co Infrastructure Financing Authority (Autoridad
ara el Financiamiento de la Infraestructura de Puerto
Rico)
3. Achieving Sustainable
Infrastructure
Financing America's water infrastructure requires a multi-faceted approach by
public and private stakeholders. For this reason, EPA developed its "four pillars"
strategy for sustainable infrastructure, which focuses efforts on full-cost pricing,
better management, water efficiency, and watershed approaches. In addition to
targeting the most serious public health threats, the DWSRF was founded on and
continues to support the principles of sustainable infrastructure upheld by these
four pillars.
Building sustainability is particularly important
for the changing environment in which drinking
water systems operate. Since the DWSRF's
inception, regulatory requirements have become
more numerous and complex, construction and
energy costs have increased significantly, and
the choice of compliance options—particularly
treatment technologies—has expanded. At the
same time, more attention is being paid to the
impact of climate change on the nation's water
supplies, particularly water scarcity.
The ways in which EPA and states have used the DWSRF to support sustainable
infrastructure have evolved over the past 10 years to address emerging needs while
maintaining the program's core focus on targeting the most significant public
health threats.
Full-Cost Pricing (Pillar 1)
The full-cost pricing pillar recognizes that the burden of infrastructure investments
is borne primarily by drinking water system customers through the rates they
pay. While difficult to achieve in practice, full-cost pricing offers the advantages
of efficiency and equity in placing the consumer at the center not only of
infrastructure financing but also of operations and maintenance.
Nevertheless, full-cost pricing can impose hardships on customers of smaller
drinking water systems, who bear significantly higher per-household costs than
customers of larger systems. While many larger communities and drinking water
systems can easily obtain access to private capital markets, small drinking water
systems or disadvantaged communities have a much harder time obtaining
affordable long-term financing.
Beyond providing drinking water systems with the means and incentives to invest
in their infrastructure now, states use DWSRF loans and set-asides to further
encourage responsible and forward-thinking financial management. States use
-------
Achieving Sustainable Infrastructure
21
ranking systems to prioritize loan applicants and can award priority points to loan
applicants that implement full-cost pricing. States also use DWSRF set-asides to
help drinking water systems understand and develop rate structures that allow for
full-cost recovery.
Full-Cost Pricing is Easier with Savings from the DWSRF
For 10 years, the DWSRF has enabled drinking water systems to make affordable
investments in critical infrastructure and simultaneously transition towards full-
cost pricing. DWSRF loans and set-asides can help PWSs implement long-term,
cost-effective solutions to avoid public health problems, rather than resort to short-
term fixes that will cost more in the long run. Immediately replacing unreliable
and deteriorating infrastructure guarantees stronger public health protection.
Systems that invest now will also save money on operations and maintenance
because new equipment is less expensive to maintain and less likely to fail.
Region 2 Award Winner: New York
Department of Health; Environmental .
Facilities Corporation
The New York DWSRF program
demonstrates innovation through
its use of short-term financing and
loan guarantees.The program has increased its
pace by providing borrowers with 3-year financing,
for which the application process is shorter and
mplex (enabling borrowers to access money
quickly). In 2007, New York began offering
loan guarantees, facilitating DWSRF financing for
terms of 30 years. Financial assistance is provided
in the form of an interest subsidy for the first 20
years and as a payment guarantee for all remaining
principal maturities.
States consistently charge below-market interest rates on DWSRF loans (Exhibit
25), which translates into significant estimated savings for drinking water systems.
In 2007, the average DWSRF interest rate was more than 2% lower than the
municipal rate. With a subsidized interest rate, a drinking water system financing
a $20 million project with a 20-year DWSRF loan would save $9-4 million over
the life of the project. These savings translate into more affordable water rates for
consumers. Over the lifetime of the DWSRF, loan recipients have saved over $3
billion—an average of nearly $300 per household served by systems receiving
assistance (Exhibit 26).
Exhibit 25: Corporate and Municipal Bond vs
DWSRF Interest Rates
•<- Corporate AAA •*• Municipal
* Corporate BAA ••• Average DWSRF
Exhibit 26: Estimated Cumulative Savings
Realized by Financing with DWSRF Loans
$3.5 $350
$3.0
2000 2001 2002 2003 2004 2005 2006 2007
Savings •*• Savings per Household
$o
i i/n Federal
stment in
York
Federal $540 M
Investments
in New York's
DWSRF
lew York's Cumulative DWSRF Activity
New York's Set-Aside Summary
10% of
Capitalization
Grant
Cumulative Spending
Administrative (4%)
$20.5 M
State Program Mgmt (10%)
$13.9 M
Small Systems TA (2%)
$9.8 M
1452(k) Activities (15%)
$5.9 M
-------
1997-2007 Highlights
22
DWSRF 2007 Annual Report
Funds Available
Loan Agreements
Value of Loans
Fund Disbursements
$1,378 M
$1,243 M
sistance as % Funds Available 90%
Set-Aside Spending Rate
Return on Federal Investment 199%
Connecticut —•
Department of Public Health; Department
of Environmental Protection; Office of the
Treasurer
Allows drinking water systems to reserve a
portion of their assistance to fund water system
management and source water protection.
department of Human Services; Municipal
land Bank
The Costs of Delay
Drinking water systems that defer needed
infrastructure improvements because they do not
believe they can afford them will only face increased
costs in the future—as well as more significant
risks to public health and higher operation and
maintenance costs in the immediate future.
Notably, construction and building costs have
been rising faster than the rate of inflation since
2003 (Exhibit 27). Between 2003 and 2007, the
Engineering News-Record (ENR) Construction
Cost Index (CCI) and the Building Cost Index
(BCI) increased by more than 20%. These increases
were due in part to growing demand for raw
materials in Asia, and they are expected to continue
in the long term. Labor costs are also expected to
increase—construction worker wages increased by 20% between 2001 and 2007-
Given these sharp increases, drinking water systems can benefit significantly by
making infrastructure investments today. Exhibit 28 shows the estimated cost of
delaying a $1 million project based on average annual construction cost increases
since 2000. Delaying a project by only 5 years can result in a near 20% increase
in construction costs.
Water Pollution Abatement Trust;
Division of Municipal Services; Division
of Watershed Management, Drinking
Water Program
ntal Services
•asides to contract with the
.jmpshire's Forests to help drinking water
systems prioritize projects for land acquisition
and facilitate purchases.
Exhibit 27: Increasing Construction and Building
Costs2
1999 2000 2001 2002 2003 2004 2005 2006 2007
Construction Cost Index •»• Building Cost Index •*• Inflation
Established a program to provide loans to
municipally owned drinking water systems for
the purchase of land or conservation easements.
Exhibit 28: Cost of Delay3
$2.4
01 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 3D
Years Delayed
2. The BCI is built using 68.38 hours of skilled labor of bricklayers, carpenters, and structural ironworkers rates, plus standard
quantities of steel shapes at the mill price, portland cement, and 2x4 lumber. The CCI is built using the same base materials
as the BCI and adding 200 hours of common labor.
3. Net present value of projects delayed by 0-20 years assuming: $ 1 million project cost; increasing construction costs equal to
3.59% per year (average annual % change of CO index from 2000-2006); 20-year loan at 3% interest; and 3% discount rate.
-------
Achieving Sustainable Infrastructure
23
By using the DWSRF to upgrade their infrastructure immediately, drinking water
systems realize financial savings, customers benefit from increased public health
protection and reliability of service as soon as the projects are completed, and the
entire community may benefit from increased economic growth. Delays result
in greater financial costs and public health risks as long as the PWS relies on
dilapidated infrastructure.
Better Management (Pillar 2)
The better management pillar focuses on the implementation of best management
practices—such as strategic planning, asset management, and environmental
management systems—to improve drinking water system sustainability and
performance and to reduce cost. States ensure that every borrower has adequate
managerial, technical, and financial
capacity; all 5,346 DWSRF loan recipients
so far have met this sustainability threshold
Gushing, Oklahoma
The Gushing Municipal Authority
secured a low-interest $4.6
million DWSRF loan to construct
a new water treatment plant,
eight new wells, and an elevated
water storage tank and to install
approximately 42,500 feet of
water lines. The new plant and
wells replaced a 70-year-old,
non-compliant surface water
system. These improvements
have brought Gushing into
compliance with all state and
federal regulations.
for improved management.
States may offer priority points to
applicants that have implemented asset
management plans or environmental
management systems. States can also use
DWSRF money to identify drinking
water systems that lack the necessary
managerial capacity to consistently
supply safe drinking water and to provide
financial incentives for them to pursue
regionalization or consolidation with other
systems. For example, South Carolina
has offered DWSRF loans at reduced
interest rates to encourage viable drinking water systems to assume ownership
and operation of non-viable systems. Funding for consolidation has increased
each year since 2005- Since 1997, over $1.1 billion in loans has been used to
eliminate nearly 750 non-viable drinking water systems through consolidation
(Exhibit 29).
Exhibit 29: Consolidation and Regionalization
of Drinking Water Systems
$180-
Cumulative Systems Eliminated
Annual Assistance Provided for Consolidation and Regionalization
Region 1 Award Winner: Rhode Island
Clean Water Finance Agency (CWFA);
Department of Health
Rhode Island has transformed its DWSRF '
program from a small direct loan program into
a large, aggressively leveraged fund providing
a high level of assistance forthe state'sever-
growing drinking water infrastructure needs.
The Rhode Island CWFA used innovative lending
practices and formed valuable partnerships
to improve public health protection forthe
community of Pawtucket while maintaining
affordable water rates. The CWFA worked with
non-DWSRF loan sources to refinance the
system's $27 million in existing capital debt
with a flexible repayment schedule, allowing
Pawtucket to purchase the system. The CWFA
then leveraged DWSRF funds, enabling the
state to provide over $100 million in loans to
Pawtucket to cover planning and construction
costs. This project is the largest funding package
provided by the state to date.
Federal $75 M
Rhode Island
DWSRF
.ve DWSRF Activity
Rhode Island's Set-Aside Summary
25% of
Capitalization
Grant
Cumulative Spending
Administrative (4%)
'. ;Q_ y
State Program Mgmt (10%)
$5,0 M
Small Systems TA (2%)
; ••• oc'
1452(k) Activities (15%)
$5.3 M
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24
DWSRF 2007 Annual Report
States use DWSRF set-aside funds to help drinking water
system personnel develop critical technical, managerial, and
financial skills. In 2007 states used the 2% Small Systems
Technical Assistance and the 15% Local Assistance set-
asides to strengthen drinking water system management at
thousands of CWSs (Exhibit 30).
States have used set-asides to help drinking water systems
understand the importance of and implement long-term
management plans, as well as form partnerships with other
systems, professional and trade organizations, and technical
assistance organizations to share knowledge. States have
also used the 10% State Program Management set-aside to
fund operator certification activities that ensure drinking
water system operators are trained in all aspects of system
operation and management and can respond to public
health emergencies.
Water Efficiency (Pillar 3)
There has been a notable increase in the recognition of the
importance of water efficiency since the inception of the
DWSRF. In turn, DWSRF funding has been critical in
strengthening the efficiency pillar. Efficient water use reduces
Exhibit 30: Annual Percent of CWSs Receiving
Technical Assistance
40% -
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
From 2% Set-Aside • From 15% Set-Aside
drinking water systems' costs and can prolong the useful life
of infrastructure. Perhaps more important, efficient water
use will be critical to ensuring the continued availability of
sufficient quantities of safe drinking water in some areas of
the country.
Having a source of low-cost financing provides systems
with the opportunity to consider more efficient treatment
technologies or other infrastructure upgrades that will
ensure more efficient water use in the long-term. DWSRF
loans can be used to fund installation of water meters,
installation or retrofit of water-efficient devices (e.g.,
appliances and plumbing fixtures), and installation of a dual
pipe distribution system as a means of lowering costs of
treating water to potable standards. Loans can also be used
Voice of Experience: Richard Sarver,
Washington Department of Health
Richard Sarver was the State of Washington's DWSRF
Program Manager for 10 years and served as a member of
the State/EPA SRF Work Group during the first 3 years of the
DWSRF program.
"The DWSRF's success comes from state flexibility.
Flexibility is provided by the SDWA and by EPA's
commitment to work closely with states in developing
program policies and rules. At the outset, EPA established
the State/EPA SRF Work Group to help identify issues and
options. With about 30 state and EPA representatives
at the table, discussions were often spirited and
always insightful. State representatives worked with
organizations such as the Association of State Drinking
Water Administrators to broaden the local perspectives
they brought to the table. EPA also solicited input from
other interested parties, but made sure state program
administrators had input into policy decisions. The
result was recognition of broad diversity among state
needs and local flexibility to each state to address those
needs. This led to local creativity and innovation, which
is often shared with other states. I also give kudos to the
Council of Infrastructure Financing Authorities for their
assistance in policy development as well as the training
and networking opportunities provided through their
annual SRF workshops.
The bottom line is the program is doing exactly what
it was intended to do. States use the funds to help
ensure delivery of safe and reliable drinking water to our
citizens. Loan funds are growing and revolving. As long
as EPA continues to workclosely with their administrative
partners, the program should continue to thrive."
-------
Achieving Sustainable Infrastructure
25
to develop incentive-based efficiency programs (e.g., rebates
and conservation rate structures) as part of a larger project.
Many states, such as Colorado and Texas, also require
drinking water systems to have efficiency plans in place as a
prerequisite for receiving DWSRF funding or offer priority
points for such plans.
States can use DWSRF set-asides to fund water efficiency
initiatives such as leak detection programs, efficiency audits,
drought monitoring, conservation rate structures, public
education programs, water efficiency plans, and conservation
ordinances or regulations.
Indiana
After the revised arsenic standard went into effect in
January 2006, Indiana identified approximately 80
(primarily very small) drinking water systems that required
a combined $2.5 million in compliance assistance. In May
2006, the state established the Arsenic Remediation
Grant Program. The Program combines DWSRF set-aside
funds for treatment facility planning and design costs
and state monies to cover construction costs.The DWSRF
Program can now offer grants up to $100,000 to small
PWSs. Sixteen applications have been submitted, and
over $220,000 in grants have been disbursed.
Watershed Approach (Pillar 4)
The watershed pillar promotes the use of watershed-based,
cost-effective alternatives to traditional treatment. For
drinking water systems, the most important aspect of this is
source water protection. The DWSRF played an important
role in ensuring that states had the resources to conduct
required source water assessments for all PWSs; in 1997, 42
states took a one-time opportunity to reserve the maximum
set-aside amount to conduct assessments. Drinking water
systems can build on these source water assessments by using
DWSRF loans to acquire land or conservation easements to
protect drinking water sources.
In addition, DWSRF set-asides can fund a broad range
of voluntary, incentive-based, and community-oriented
source water protection activities, including constructing
fences around surface water supplies, capping wells, and
conducting public outreach (e.g., holding workshops on
hazardous waste disposal). States can also use set-asides to
administer and provide technical assistance through the
state source water protection program.
In total, nearly $214 million in set-asides have supported
loans for land acquisition and conservation easements,
wellhead protection, source water protection area delineation
and assessment, and loans for incentive-based source water
protection measures. States used these set-asides to meet
source water assessment requirements, as shown by the
peak in funding in 2002 (Exhibit 31), and continue to use
set-aside funds to ensure that drinking water systems and
communities are actively working to protect watersheds.
Using its 15% Local Assistance set-aside, North Carolina
initiated a campaign to educate state and local officials,
businesses and industries, drinking water system staff, and
the general public about wellhead protection. The state
also contracted with a technical assistance provider to help
communities develop and implement wellhead protection
plans and conduct inspections and sanitary surveys at ground
water systems. Pennsylvania used its 10% State Program
Management set-aside to hire an environmental planner to
develop and administer local source water protection grants
and to deliver training to drinking water system and field
staff.
Ongoing Importance of the DWSRF
Ensuring long-term sustainability, particularly for small
drinking water systems, will continue to be a challenge.
States have used DWSRF funding to provide drinking water
systems with long-term planning tools and knowledge to
prepare to respond to regulatory, financial, technological,
and environmental changes. The program's built-in flexibility
allows EPA and states to continue to ensure that funding is
used in the most appropriate and effective way to support
the four pillars of sustainable infrastructure in the future.
Exhibit 31: Annual Source Water and
Wellhead Protection Program Assistance
Wellhead Protection
Technical Assistance
Delineation and Assessment
Loans for Source Water Protection
-------
26
DWSRF 2007 Annual Report
4. Future of the DWSRF
Given the remarkable financial success of the DWSRF and
its contribution to public health protection nationwide, the
future of this program is bright. State DWSRF programs have
carved out a niche within the lending market as a reliable
source of funding for drinking water infrastructure, especially
for the systems most in need. Because of rising infrastructure
needs, complex new drinking water regulations, and the
tightening of credit markets and state and local budgets, the
demand for DWSRF financing will only increase. Building
on its foundation of success, the DWSRF will continue to
grow and meet the needs of drinking water systems across the
country.
Increasing Infrastructure Needs
Drinking water infrastructure needs continue to rise as systems
nationwide struggle to provide safe drinking water using
outdated and deteriorated infrastructure. The 2003 DWINSA
estimated the national infrastructure need at $276.8 billion,
which is approaching the estimates of the 1995 and 1999
DWINSAs combined (Exhibit 32).
Drinking water systems have continued to increase
infrastructure investments and the DWSRF continues to
grow. However, these investments have not kept pace with
total need. The 2002 Clean Water and Drinking Water
Infrastructure Gap Analysis identified a potential gap
between needs and spending ranging from $45 billion (under
a 3% revenue growth scenario) to $263 billion (under a no
revenue growth scenario) by 2020. In 2005, the American
Society of Civil Engineers estimated that the annual drinking
water infrastructure shortfall is at least $ 11 billion. This
funding gap is expected to continue growing through 2020,
driven primarily by pipe replacement needs as distribution
systems exceed their useful lives (Exhibit 33). In addition,
many drinking water systems are just now realizing the gap
between their capital needs and available funding as critical
system components deteriorate beyond repair. DWSRF
funding will be vital in helping drinking water systems keep
pace with their significant infrastructure needs.
Program Changes
As the DWSRF matures, the focus of each state's program
will change to align with the needs of their drinking water
systems. For example, now that state programs are mature,
states are modifying program goals towards the long-
term needs of drinking water systems. Many states are
also updating their project priority lists, creating dynamic
Exhibit 32:20-Year Demand for Funds4
Exhibit 33: Projected Pipe Replacement Needs5
$276
1995-2014
1999-2018
2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050
4. EPA's DWINSAs of 1995, 1999, and 2003.
5. EPA's 2002 Clean Water and Drinking Water Infrastructure Gap
Analysis.
-------
Future of the DWSRF
27
Voice of Experience: Don Niehus, EPA Region 3 SRFTeam Leader
Don Niehus is the Region 3 SRF Team Leader. He has been involved with the DWSRF program since 1996 and is co-author of the first
draft of the DWSRF Initial Guidance.
"Looking back over the last 20 years, the SRF programs have evolved to become EPA's biggest programs and have achieved
widespread respect and support for their environmental and public health accomplishments.
Congress appropriately gave states the authority to manage the DWSRF program. States have ably risen to the challenge and
are to be commended for their successes. The EPA regions have assisted the states in successfully implementing the DWSRF
program through providing technical assistance, sharing "best practices,"and conducting program oversight which identified
areas for improvement. The regions continue to work with the states on challenges such as expediting fund expenditures and
encouraging creative and effective use of set-aside funds."
processes that accurately reflect systems' readiness to proceed
and the likelihood to receive funding. States have also increased
overall DWSRF set-aside spending in recent years and will
continue to use set-aside funds to assist drinking water systems
most in need, particularly in light of new regulations.
Future Projections
The value of the DWSRF will continue to increase as drinking
water systems repay interest and principal from loans. EPA
predicts that the DWSRF's revenues from interest earnings,
interest payments on loans, and principal repayments will
grow to $2.4 billion by 2018 and $4.2 billion by 2038, an
increase of almost 400% compared to 2007 (Exhibit 34). As
the DWSRF grows, more funds will be available to finance
critical infrastructure projects. Annual DWSRF disbursements
are predicted to increase 88% over the next 30 years, rising
to $2.6 billion by 2018 and more than $3 billion by 2038
(Exhibit 35).
The DWSRF will continue to grow and meet the needs of
drinking water systems across the country
Exhibit 34: Projected Cumulative DWSRF
Interest and Principal Repayments6
$90
1997 2007
Interest Earnings
Interest Payments
Principal Repayments
Total
Exhibit 35: Projected Annual Project
Disbursements6
6. DWSRF Financial Planning Module.
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28
DWSRF 2007 Annual Report
5. Financial Details
EPA has produced the following joint financial statements
for the DWSRF program based on data reported by states:
• A Statement of Net Assets
• A Statement of Revenues, Expenses, and Earnings
• A Statement of Cash Flows
The statements are best thought of as un-audited financial
reports that provide information on program performance.
Highlights
Statement of Net Assets
The Statement of Net Assets (Exhibit 38) describes the
DWSRF's assets and liabilities at the end of Fiscal Year
(FY) 2007- Assets include both financial and capital assets,
such as grant funds drawn from the federal treasury, but do
not include total grant awards. Liabilities include leveraged
bonds and match bonds, which account for both current and
long-term liabilities. The set-aside funds have no liabilities.
Total assets of the loan funds have increased every year of the
DWSRF program (cumulative growth in assets is displayed
in Exhibits 36 and 37).
• Total assets of the loan funds were $12.3 billion in
2007, an increase of 12.5% over 2006. Outstanding
loans account for 66% of the program's assets.
• State and federal contributions make up about 90%
of the $7-8 billion in DWSRF program equity or net
assets.
• Total assets increased by $1.4 billion from 2006 to
2007-
Statement of Revenue, Expenses, and Net Earnings
The Statement of Revenue, Expenses, and Net-Earnings
(Exhibit 41) describes the operating and nonoperating
revenues and expenses of the funds at the end of FY 2007-
Operating revenues and expenses include interest from fund
investments and DWSRF loans and expenses from bond
interest and amortized bond issuance. Nonoperating revenues
and expenses include state and federal contributions. The
operating revenues and expenditures of the set-aside funds
have remained relatively stable since 2001 (Exhibits 39 and
40).
• Annual operating revenues of the loan fund increased
by $65-7 million from 2006 to 2007, an increase of
20%; most of this increase was generated by interest on
fund investments.
• Annual operating expenses for 2007 rose $8.8 million
to $185 million, a 5% increase over 2006.
• Total revenue of the loan fund exceeded total expenses
by $1.11 billion in 2007, a 12% increase over 2006 and
the largest amount by which total revenue has exceeded
total expenses in the program's history.
Statement of Cash Flows
The Statement of Cash Flows (Exhibit 42) provides a detailed
accounting of cash flows into and out of the DWSRF
program. Cash flows into the fund include loan principal
repayments, interest received on loans, and contributions
from states. Flows out of the fund include loan disbursements
to be repaid and bond issuance expense.
• For the loan fund, loan disbursements to be repaid
totaled $1.6 billion in 2007, a 12.9% increase over
2006.
• Loan principal repaid increased by $99-7 million
to $455-5 million, an increase of 28% over 2006
repayments.
• Leveraged bond proceeds added $403-3 million to
program cash flow.
Exhibit 36: Cumulative DWSRF Net Assets
Exhibit 37: Cumulative Growth of DWSRF Assets
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Net Assets • Liabilities
Cash and Cash Equivalents Loans Outstanding
Debt Service Reserve - Leveraged Bonds
-------
Financial Details
29
Exhibit 38: Statement of Net Assets — Loan Funds
Assets
Cash and Cash Equivalents
Debt Service Reserve - Leveraged Bonds
Loans Outstanding
Unamortized Bond Issuance Expenses
Total Assets
Liabilities
Match Bonds Outstanding
Leveraged Bonds Outstanding
Total Liabilities
Net Assets
Federal Contributions
State Contributions
Transfers - Other SRF Funds
Other Net Assets
Total Net Assets
Total Liabilities & Net Assets
2007
2,865.8
1,332.3
8,084.5
55.1
12,337.7
315.0
4,220.2
4,535.2
5,494.5
1,471.5
387.5
449.0
7,5025
12,337.7
2006
2,763.9
1,227.1
6,925.4
53.0
10,969.3
319.9
3,962.0
4,281.8
4,677.6
1,372.3
374.8
262.8
6", 687.5
10,969.3
(millions of
2005
2,506.7
1,087.7
5,851.8
48.0
9,494.2
289.7
3,515.1
3,804.8
3,933.3
1,255.2
354.8
1,46.1
5,689.4
9,494.2
$)
2004
2,382.4
865.2
4,898.3
44.2
8,190.2
256.6
3,107.7
3,364.3
3,296.2
1,140.9
310.1
78.6
4,825.9
8,190.2
2003
1,972.7
628.6
3,914.2
34.6
6^550.0
194.8
2,387.9
2,582.6"
2,587.3
1,001.1
318.4
60.6
3,967.4
6,550.0
Statement of Net Assets—Set-Aside Funds (millions of $)
2007 2006 2005
2004
Total Assets
Liabilities
Total Liabilities
8.1
7.0
6.4
6.1
2003
Assets
Cash and Cash Equivalents
Loans Outstanding
3.4
4.7
2.5
4.4
1.5
4.9
1.1
4.9
0.9
2.4
3.3
Net Assets
Federal Contributions
Other Net Assets
Total Net Assets
Total Liabilities & Net Assets
955.3
(947.2)
8.1
8.1
826.7
(819.7)
7.0
7.0
702.8
(696.3)
6.4
6.4
588.4
(582.4)
6.1
6.1
476.1
(472.7)
3.3
3.3
Exhibit 39: Cumulative DWSRF Revenue
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Loan Interest
Operating Revenues-
Interest Earnings
Nonoperating Revenues (Expenses)
Exhibit 40: Cumulative Revenue and Expenses
Operating Revenues
Nonoperating Revenue (Expenses)
Operating Expenses
Net Assets
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30
DWSRF 2007 Annual Report
Exhibit 41 : Statement of Revenue, Expenses, and Net Earnings (millions of $)
Operating Revenues
Interest on Fund Investments
Interest on DWSRF Loans
Total Operating Revenues
Operating Expenses
Bond Interest Expense
DWSRF Funds Used for Refunding
Amortized Bond Issuance Expense
Total Operating Expenses
Nonoperating Revenues and Expenses
Federal Contribution
State Contributions
Loan Forgiveness Expenses
Transfers from (to) CWSRF
Total Nonoperating Revenues and Expenses
Increase (Decrease) in Net Assets
Net Assets
Beginning of Year
End of Year
Statement of Revenue, Expenses,
Operating Revenues
Interest on I452(k) Loan Account Investments
Interest on I452(k) Loans
Total Operating Revenues
Operating Expenses
Administrative Expenses Under the 4% Set- Aside
Expenses Under the 2% Set-Aside, Small Systems Technical
Assistance
Expenses Under the 10% Set- Aside, State Program
Management
Grants made under the I452(k) Set-Aside
Total Expenses
Nonoperating Revenues and Expenses
Federal Contribution
Total Nonoperating Revenues (Expenses)
Increase (Decrease) in Net Assets
Net Assets
Beginning of Year
End of Year
2007
160.2
241.0
401.2
182.1
0.0
2.6
184.7
816.9
99.3
(30.4)
12.7
898.4
1,115.0
6,687.5
7,802.5
and Net
2007
0.11
0.15
0.26
32.0
13.8
49.5
32.4
127.7
128.6
128.6
1.1
7.0
8.1
2006
129.5
206.0
335.5
169.6
3.9
2.4
175.9
744.3
117.1
(42.9)
20.9
535.5
998.1
5,689.4
6,687.5
2005
92.7
171.2
263.9
149.8
2.1
2.2
154.2
637.0
114.3
(42.2)
44.7
753.7
863.5
4,825.9
5,689.4
2004
67.9
148.5
216.4
119.8
31.1
1.7
152.7
708.9
139.9
(45.7)
(8-3)
794.8
858.5
3,967.4
4,825.9
2003
74.4
115.5
189.9
99.4
47.1
1.6
148.1
591.5
157.5
(34.5)
86.8
801.4
843.1
3,124.3
3,967.4
Earnings (millions of $)
2006
0.06
0.19
0.25
30.1
14.0
49.4
30.1
123.6
123.9
123.9
0.5
6.4
7.0
2005
0.02
0.03
0.06
28.1
13.9
43.2
28.8
114.0
114.3
114.3
0.4
6.1
6.4
2004
0.01
0.04
0. 05
26.6
11.6
39.1
32.4
109.7
112.4
112.4
2.8
3.3
6.1
2003
0.01
0.04
0.04
27.7
10.7
40.2
40.9
119.5
119.9
119.9
4.0
2.9
3.3
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Financial Details
31
Exhibit 42: Statement of Cash Flows — Loan Funds (millions of $)
Operating Activities
2007
Loan Disbursements to be Repaid (1,614.6)
Loan Principal Forgiven
Loan Principal Repayments
Interest Received on Loans
Contributions from States
Cash Draws from Federal Capitalization Grants
Total Cash Flows from Operations
Noncapital Financing Activities
Bond Issuance Expense
Interest Paid on Leveraged and State Match Bonds
DWSRF Funds Used for Refunding
Principal Repayment of Leveraged Bonds
Principal Repayment of State Match Bonds
State Match Bond Proceeds
Cash Received from Transfers with CWSRF
Gross Leveraged Bond Proceeds
Total Cash Flows from Non-Capital Financing Activities
Cash Flows from Capital and Related Financing Activities
Investing Activities
Interest Received on Fund Investments
Deposits to Debt Service Reserve for Leveraged Bonds
Total Cash Flows from Investing Activities
Net Increase (Decrease) in Cash and Cash Equivalents
Beginning Balance - Cash and Cash Equivalents
Ending Balance - Cash and Cash Equivalents
Statement of Cash Flows — Set-Aside
Operating Activities
Federal Contribution
I452(k) Loan Disbursements Made to Borrowers
I452(k) Loan Principal Repayments
Interest Received on I452(k) Loans
Administrative Expenses Under the 4% Set-Aside
Expenses Under the 2% Set-Aside, Small Systems Technical Assistance
Expenses Under the 10% Set- Aside, State Program Management
Grants made under the I452(k) Set-Aside
Total Cash Flows from Operating Activities
Noncapital Financing Activities
Net Cash Provided by Noncapital Financing Activities
Cash Flows from Capital and Related Financing Activities
Investing Activities
Interest Earnings on I452(k) Loan Account Investments
Net Cash Provided by Investing Activities
Net Increase (Decrease) in Cash and Cash Equivalents
Beginning Balance - Cash and Cash Equivalents
Ending Balance - Cash and Cash Equivalents
(30.4)
455.5
241.0
99.3
816.9
(32.3)
(4-7)
(182.1)
0.0
(145.0)
(24.3)
19.4
12.7
403.3
79.2
0.0
160.2
(105.3)
55.0
101.9
2,763.9
2,865.8
Funds
2007
128.6
(0-9)
0.7
0.1
(32.0)
(13.8)
(49.5)
(32.4)
0.8
0.0
0.0
0.11
0.1
0.9
2.5
3.4
2006
(1,429.5)
(42.9)
355.8
206.0
117.1
744.3
(49.1)
(7-4)
(169.6)
(3-9)
(116.9)
(19.2)
49.3
20.0
563.8
316.1
0.0
129.5
(139.3)
(9.8)
257.2
2,506.7
2,763.9
(millions of
2006
123.9
(0-3)
0.7
0.2
(30.1)
(14.0)
(49.4)
(30.1)
0.9
0.0
0.0
0.06
0.1
1.0
1.5
2.5
2005
(1,225.9)
(42.2)
272.5
171.2
114.3
637.0
(73.1)
(6.0)
(149.8)
(2-1)
(101.6)
(17.3)
50.4
44.7
509.0
327.3
0.0
92.7
(222.5)
(129.8)
124.3
2,382.4
2,506.7
$)
2005
114.3
(0-3)
0.4
0.0
(28.1)
(13-9)
(43.2)
(28.8)
0.4
0.0
0.0
0.02
0.0
0.4
1.1
1.5
2004
(1,224.1)
(45.7)
240.0
148.5
139.9
708.9
(32.6)
(11.4)
(119.8)
(31-1)
(80.9)
(13-5)
75.4
(8-3)
800.7
611.0
0.0
67.9
(236.6)
(168.7)
409.7
1,972.7
2,382.4
2004
112.4
(2-7)
0.2
0.0
(26.6)
(11.6)
(39.1)
(32.4)
0.2
0.0
0.0
0.01
0.0
0.2
0.9
1.1
2003
(1,062.5)
(34.5)
154.8
115.5
157.5
591.5
(77.6)
(4-6)
(99.4)
(47.1)
(58.0)
(8.6)
29.0
86.8
433.4
331.4
0.0
74.4
(107.7)
(33.3)
220.4
1,752.3
1,972.7
2003
119.9
(0-3)
0.4
0.0
(27.7)
(10.7)
(40.2)
(40.9)
0.4
0.0
0.0
0.01
0.0
0.4
0.5
0.9
-------
DWSRF
At-a-Glance
Assistance Provided to Projects ($ Millions)
Funds Available for Projects ($ Millions)
Total, by Project Type
Planning and Design Only
Construction
Treatment
Transmission & Distribution
Source
Storage
Purchase of Systems
Restructuring
Land Acquisition
Total, by Population Served
Less than 501 Served
501 to 3,300
3,301 to 10,000
10,001 to 100,00
100,001 and Above
Loans, by Population Served
Less than 501 Served
501 to 3,300
3,301 to 10,000
100,001 and Above
$1,626.9
$1,626.9
1997-2007
$12,629.5
5,503.8
4,272.9
1,282.7
$12,629.5
590.2
2,117.6
2,216.8
4,878.7
2,826.3
Total Funds
Federal Capitalization Grants
State Match
Net Leveraged Bond
Net Loan Principal Repayments
Net Interest Earnings
Net Transfers with CWSRF
Less Set-asides
(194.8)
Other Key Statistics
- Return on Federal Investmer
- Average DWSRF Interest Rate in
2007 (vs. Market Rate of 4.2%)
- States that Leverage
at Conduct Separate Audits
1997-2007
$14,420.0
8,129.0
1,875.0
3,438.5
1,103.5
1,310.4
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